The Right Kind of Debt

The Right Kind of Debt 

Why do so many people seek to eliminate what could be the best financial opportunity by ignoring math?  I think it has something to do with the misguided premise that life without debt is better than life with debt. 

Debt is a tool that lets you buy the house earlier than you could have without outside backing.  Many of us raise our children in a home while paying off our mortgage.  If we bought well, the home is appreciating, and our equity is increasing. 

Housing debt gives us a fixed payment on the interest and principal.  With inflation, this fixed payment has the effect of shrinking as our purchasing power increases.  For most of us, our house payment is decreasing as a percentage of our income.  

If you bought your house before 2022, odds are that your fixed interest rate is less than 4% and for some of us, less than 3%.  For many of us, there is an additional benefit of a tax deduction for interest paid on a primary or secondary mortgage. 

There is another alternative to paying off your home mortgage debt early. If you can make 6-9% in a diversified portfolio over a long period of time, the gain in saving the money and not paying off the debt is 3-6%.  Additionally, saving money increases your liquidity and increases your financial security. 

Not all debt is the same. Our Financial Advisors can help you look at your situation and help determine how to make the most of your money. 

Nothing above is meant as actionable investment advice for any person or entity. Please contact an investment professional for any advice specific to your situation. While written in good faith, most of the above is opinion, not fact.